What is a Standard Trustee Fee?

 In Revocable Trusts

Question:

If no fee is mentioned in the trust documents, what would be a reasonable amount for a routine administration of the trust (percentage and/or amount)?

Answer:

Trustees are entitled to “reasonable” compensation whether or not the trust explicitly provides for such. Typically, professional trustees, such as banks, trust companies, and some law firms, charge between 1.0% and 1.5% of trust assets per year, depending in part on the size of the trust. They charge a higher percentage for smaller trusts, typically under $1 million, and less for larger trusts, typically over $2 million, since the amount of work involved is more or less the same no matter the size of the trust.

In the past, professional trustees would often charge both a percentage of the trust principal and a percentage of the trust’s annual income, in part because trusts often provide that the income and principal beneficiaries are different. For instance, a trust might provide that all of the income be paid to a surviving spouse but that the principal be preserved to pass on to the children upon the spouse’s death. If the fee comes solely from the trust principal, it would seem that the surviving spouse gets a free ride if the income stream does not share the expense. Nevertheless, with the decline in trust income in recent years due to chronically low interest rates, it has become customary to charge the fee only to trust principal.

While it’s customary to charge a percentage, this can be problematic for smaller trusts. A trust holding $200,000 and paying a fee of 1.5% would pay an annual fee of $3,000, which may or may not cover the trustee’s costs. Some professional trustees charge a minimum of $5,000 a year. In my own practice where we end up being trustees of last resort for a number of smaller trusts — cases where there’s no appropriate person in the family to act as trustee and the trust is too small to engage a traditional bank or trust company — we charge our standard hourly rates for our work plus 0.5% per year. For a trust holding $200,000, for instance, this would entail an extra charge of $1.000 a year.

Fees are less standard when a non-professional acts as trustee, either on her own or in conjunction with a professional trustee. Where the professional trustee is doing most of the heavy lifting, many non-professional trustees, who are often family members, take no fee. However, just as often they do take a fee, the standard I’ve seen is 0.25%, which on a trust holding $1 million would be $2,500 a year. Where there’s no professional trustee acting, the non-professional trustee can certainly charge a higher fee and can use the professional standards as a guide. However, they should look at other trust costs. For instance, professional trustees usually take care of the investments as part of their function. If the trust is hiring an investment advisor, that cost should be considered in determining the trustee’s fee so that together they don’t get too high.

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